Hi YXI friends,

Another chaotic day yesterday, with equities opening extremely high but closing deep in red.

The weirdest move of them all was the bond yields, which continued rising despite the macro fundamentals supporting the downside instead.

We will go through in detail what this could mean to TLT, with some fresh possibilities for Bitcoin and Tesla too.

By the way, I encourage you to check out the latest ETF flows in section 7 - there were some surprises in there.

Table of Contents

• 1. YXI Daily Dashboard

• 2. TLT

  • Signal vs Reality

  • What is this new driver that is pushing up yields? …

  • US Treasury ETF Flows (1-week, % of AUM)

  • FOMC Projection by Fed Funds Futures

  • Price Technicals

  • YXI TLT Daily Signal (Beta Stage)

• 3. Bitcoin

• 4. Magnificent 7

  • Apple

  • Amazon

  • Alphabet

  • Meta

  • Microsoft

  • Nvidia

  • Tesla - New Possibility

• 5. Opportunistic Setups

• 6. Trade Updates And Monitoring

• 7. Notable ETF Flows

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. YXI Daily Dashboard

The most notable changes this week so far are:

1) Truflation’s real-time inflation measure is well below 1.5%, projecting a deflationary environment.

2) US Dollar is falling despite sharply rising yields in the past 2 days.

3) US-Japan and US-China yield spreads have widened, which are theoretically supportive of risk assets due to carry trading. But risk assets continue to be under huge selling pressure near-term.

4) The 10-year yield is trading out of whack versus macro fundamentals (more on this below). The 2-year vs 10-year yield curve is steepening dramatically.

2. TLT

Signal vs Reality

This week we have enjoyed a “brilliant” start to the quant signals, which suggested bullishness to TLT in the 5 days ahead, only for TLT to be diving off a cliff.

So the signals are rubbish then?

Quantitative models exhibit greater precision in identifying patterns between macroeconomic drivers and asset price movements.

In the absence of a regime change, the model has identified an opportunity indicating that TLT is misaligned with the typical macroeconomic drivers. This misalignment may represent a temporary price dislocation caused by a new exogenous factor.

The danger is if we are at an inflection point of a macro regime change, which nobody knows for sure until in hindsight. In this scenario, the model could lag in its reaction as it takes time to recalibrate from the changing dynamics. Knowing the weaknesses of the model is just as important as its effectiveness.

US 10Y Yield performance (blue) vs DXY (pink), 10Y Inflation Expectation (green), USO (orange), SPY (red), and GLD (purple)

The chart above shows that over the past two months, the 10-year yield has generally aligned with trends in inflation expectations, oil prices, and risk assets, with the exception of gold.

However, this week, the 10-year yield experienced a significant increase, even as other indicators continued to decline.

What is this new driver that is pushing up yields?

There is speculation that China is deliberately dumping its Treasury holdings to hurt the US Treasury auction this week. China held $760 billion of UST in January, which is sizeable dry powder. At the same time, Japan has explicitly ruled out using the country's $1.1 trillion US Treasury holdings as a bargaining tool.

Given Trump’s new economic plans focus on lower 10-year yields rather than the stock market, pushing the Treasury yields higher would seem a pyrrhic retaliation tactic to the tariffs. While this hurts China’s overall US asset value, China is freeing up more cash for buying gold, which is up 2% today.

In this context, the 30-Year Bond Auction tomorrow (post CPI) could present a significant challenge on the demand side.

US Treasury ETF Flows (1-week, % of AUM)

In the past week, US Treasury ETFs are seeing notable flows in the short duration funds (SGOV, IEF which is 7-10y), but out flows in the longer end (TLT, GOVZ, GOVT). This conforms with the yield steepening we’ve seen.

FOMC Projection by Fed Funds Futures

Price Technicals

US 30Y Yield New Possibility: (https://www.tradingview.com/x/29z6INI0/)

What’s changed the game is that today’s intraday high for the 30-year yield moved above the height of wave (1) in January.

This opens the door to the possibility of the past 6 months being a (1)-(2) setup to the upside. Unfortunately, this was not my primary expectation going into today.

I have limited confidence in the interpretation of this chart, but have to present this possibility as it arises. As we are in a period of great flux, I will continue updating the charts as the situation presents greater clarity.

Also, I am not afraid of admitting to be wrong - changing one’s mind when new evidence arises is extremely valuable in trading. You should know that I won’t hold onto a view for the ego’s sake.

TLT New Possibility (https://www.tradingview.com/x/NVZR3umH/)

If that new possibility is correct for the 30-year yield, then TLT is faced with significant downside challenge, first moving into mid-$70s.

Again, I must stress that this is an early stage assessment and could easily be wrong.

YXI TLT Daily Signal (Beta Stage)

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